I read a featured blog post from Mesa, Arizona Real Estate Broker, Teri Ellis this morning regarding another agent's request for her to list and market a home that sounded as though the other agent and the sellers were involved in a "buy and bail" plan. For those of you unfamiliar with the term "Buy and Bail", this is the practice of homeowners purchasing a "new" home at today's prices with the intention of giving their current home back to the bank after they take title to the "new" home. This exit strategy is being used today when homeowners:
- Have a monthly payment that they are no longer able to afford - often due to escalating interest rates, job loss, financial hardships, etcetera.
- Are unable to sell the property because the property's current fair market value will not satisfy the mortgage debt and closing costs associated with a transfer of ownership
- Are overwhelmed at the prospect of paying thousands upon thousands of dollars off on a mortgage that greatly exceeds the value of the property - especially when the homes around them are going into foreclosure and being sold as short sales by the very same lenders to new buyers who will enjoy a similar home at better terms and conditions than they themselves are struggling to handle.
I understand Teri's unwillingness to assist another agent and his seller turned buyer's home on the market knowing that some sort of fraud was about to be perpetrated. I admire Teri's ethics and her professional and personal standards and I entirely support her decision not to participate in this agent and seller/buyer's plan.
However, not that I condone the Buy and Bail practice, I also understand a seller's willingness to do a buy and bail in order to keep a roof over their head when they are at the end of their rope.
I have knowledge of young first-time homeowners who purchased a small condo in a new community almost five years ago. That small condo was all they could afford and although it was slightly on the fringe of town they were excited that it was in a gated community, brand new and ready for immediate occupancy. Today, that condo is worth $200,000 LESS than their purchase price and falling monthly. They have acted in good faith, been fiscally responsible, and have reduced their original mortgage debt by $40,000 over the past five years. Unfortunately, the mortgage offered them was a five-year ARM that is coming due and as result have contacted the mortgage company about converting the loan to a fixed rate mortgage. The mortgage company will not convert their mortgage to a fixed rate and they have been told that the company is not writing new mortgages in that market. Upon contacting other lenders, the couple is unable to obtain financing for the property because of today's reduced value. To refinance elsewhere, they will be roughly $160,000 SHORT plus closing costs.
Yet all around them, the very same lenders are negotiating short sales at today's prices and foreclosing on homes only to place them on the market as REOs (a term banks use to indicate Real Estate Owned by them) at TODAY'S REDUCED MARKET PRICE!
So you can clearly see why I understand the frustration of home sellers trying to do the right thing, yet getting absolutely no help from the banks that have received billions in government stimulus that was meant to help out people exactly like this young couple.
Where has all the money gone? A report this morning indicated that only 9% of that money has been given out to help homeowners.
Why are lenders sitting on the bailout stimulus money? The answer appears quite clear: to keep themselves afloat and make their bottom line and cash positions look great to potential investors and share holders. Oh, and those "performance" bonuses are pretty nice as well!
Americans are told their entire lifetime that home ownership is the great American dream, yet for many the dream has turned into a nightmare.
Instead of the government handing over the stimulus money to the banks, Americans would have been better served to have been offered a federal stimulus bill of their own where they could have had their home appraised at today's fair market value and the "negative value to debt" offset as a form of a one-time payment to the primary lender to stabilize both the housing market and financial lending market.
Let me take this one step further now that I am wound up:
I hope that the government will consider putting the next round of stimulus money into the hands of the people. Let all of us submit a request to some new Tsar (that will create a few more government "jobs") to pay off our credit card debt in exchange for our turning the credit card in and being shut out from acquiring new credit card debt for, say, a period of seven years. This will make us a cash society again and will in all likelihood stimulate the economy since we won't be paying interest on interest at 25% APR to banks that have already received billions of our tax dollars.
This "Cash for Credit Cards" program will act as a "stimulus" to the credit card companies to reduce their escalating monthly double-digit interest choke-holds on Americans and give credit card account holders the negotiating position of either having credit card companies provide Americans with realistic single digit interest rates or face having us cut the credit card companies off at the knees courtesy of "our" stimulus bill.
By the way, you can vote for me for Florida state senator as a write-in candidate. If elected, I will not take any prisoners nor be held hostage to a 3,000+ page health care bill that no one has read or wants. If this bill is good enough for us, then it's good enough for the Congress to join. But that's another rant.